Starbucks plans for China expansion

STEAMING AHEAD:Starbucks had a 66.3% share of the China’s coffee shop market in 2010, and its current expansion plan envisions 1,500 stores in 70 cities by 2015

Bloomberg

Starbucks Corp is planning a bigger push into smaller cities in China as the world’s largest coffee shop operator triples the number of stores it has in the country that will become its second-biggest market by 2014.

The company will have 1,500 stores in more than 70 Chinese cities by 2015 and expansion through smaller cities is “most definitely” a viable way to grow, the company’s China and Asia Pacific head John Culver said yesterday on Hainan Island, China.

The added stores would build on Starbucks’ push outside the US and help it tap growing demand from coffee drinkers in the world’s most populous nation. China’s coffee shop market is forecast to surge 55 percent, from 2.9 billion yuan last year to 4.5 billion yuan (US$714 million) in 2015, data from Euromonitor International show.

“We see tremendous opportunity to continue to grow in cities that we are currently in — those tier one, tier two cities,” Culver said. “And also, thoughtfully to expand to tier two, tier three, tier four cities.”

Business in China’s smaller cities has “been tremendously successful” so far, he said.

A deeper push into Asian countries like China is set to help the company’s profits. Operating margins for the company’s China/Asia Pacific business was 34.6 percent in the fourth quarter of last year, topping the 21.8 percent recorded for its US segment, according to the company’s January earnings statement.

The company is increasing “investment dollars” to build infrastructure in China, Culver said without providing a specific number.

Starbucks said last year it had signed an agreement to form a joint-venture company with Chinese coffee operator Ai Ni Group (愛?農牧集團) to purchase and export high-quality arabica Yunnan coffee beans.

Other global competitors are also expanding. Luigi Lavazza SpA, an Italian coffee company, said in November last year that it plans to open more than 200 coffee shops in first and second-tier cities in China over the next three years.

China is set to become the -Seattle-based coffee chain’s second largest market outside the US by 2014, Culver said.

The company has about 500 outlets in China and operates in 48 cities at the moment.

“Over the 13 years we have been in China, we have been able to introduce the coffee house culture in China and it’s no different when we move into those cities where we don’t currently have stores,” he said.

Starbucks owns all its stores in China, except in Jiangsu Province, Zhejiang Province and Shanghai, where it operates a joint venture with Taiwan’s Uni-President Enterprises Corp (統一企業).

As coffee prices have risen, the company has its supply of coffee “bought out through the remainder of 2012 and into the first six months of 2013,” Culver said.

Starbucks said last month that it plans to introduce a new single-serve brewer called the Verismo in the US later this year. The machine will make espresso-based beverages and brewed coffee. The company started selling Via instant coffee in China, Hong Kong, Macau and Taiwan in April last year.